How to sell off an electricity distribution business

For the governments who still own their electricity businesses, and want nothing better than to reduce government debt, what sort of value proposition can they offer for their distribution businesses, when they are in a state of flux – a moving target, if you will?

In order for governments to get top dollar for their assets, purchasers need an underlying or guaranteed income stream otherwise they will show no interest. Any government who can provide this these days is either telling fibs, or setting the voters up for government sponsorship of the purchaser.

The short answer is no Australian government, state or federal, should ever consider selling off a distribution monopoly – it doesn’t work. The next best thing is to do everything but: that is, make the model attractive and profitable enough that private investment is attractive, and run it under that model.

I managed to speak briefly on the phone to someone in the Queensland government who may be advising them on future directions for the distribution industry in that state. I was pleased to hear that storage is definitely on the agenda.

To qualify my position early, I make and sell storage. I am not fully abreast of all details of the situation at hand, and have formed my assertions by looking from the outside in. Plus, I am fairly cynical – not about government intentions, but about their ability to make, and back, decisions that are of a radical nature.

Referring to this current task, I offer the following advice on energy storage. The key questions I would ask if I were in government are:

– 

What level of distribution assets would be required as a minimum, if storage was incorporated into almost every dwelling (home or unit) to maintain minimum reliability standards?

The standard unit we offer is 10 or 20 Kilowatt hours of storage, mainly because this suits a typical solar array’s daily output. Ours and most others have an ability to charge from the grid as well as absorb solar production. There is a quite a bit of science in it, but weather that affects solar output also directly relates to energy imposts on the grid.

For example, a clear sunny day in summer will see solar production at near its maximum, and also air conditioner loads, conversely in winter, on a wet or cloudy day solar production may be halved, yet in Queensland this also means that temperatures do not fall as much as they do with clear skies, so heating loads reduce as well. If we refer to the January storms we had this year, while there was a prolonged period of dreary days, solar production still averaged over half the usual maximum at my home, yet I had no cause to use air-conditioning.

On the longest and clearest of summer’s days, a solar household could expect to fully charge their storage by 1pm, exports would then occur which would supplement what would be a significant air-conditioning demand. It is possible to do the science to come up with the minimum capacity requirements for the grid based on varying deployment scenarios.

– How do distributors account for and manage these storages so they are not left exposed to reliability issues?

This would figure as one of the most significant risks with large-scale deployment of incremental storage. This risk can be managed through a register of systems, managed by the manufacturer or agent and logged with the relevant distributor. Our product is sold as a fully managed system, meaning the customer never actually owns the storage core. This benefits the owner by ensuring the reliability and technology standards of the system, the distributor has one point of reference for multiple installations and, issues such as recycling and disposal are sorted as they eventuate. By having accountable deployment, a predictable level of reliability can be factored into calculations when determining the minimum amount of network capacity required to meet reliability standards.

– What would make a suitable business case to cause distributors to champion and subsidise the installation of storage? Can the right business model attract private investment into Queensland distribution?

There is enough evidence to show that expenditure on storage offers more bang-for-buck than poles and wires. A distributor choosing to de-leverage the loads on a network gives them opportunity to not only reduce the physical amount of infrastructure installed, but, by systematically rolling out storage can remove redundant infrastructure and ensure that what remains is the most reliable possible. It could be argued that the financial benefits achieved by swapping storage for network capacity enables funds to modernize the remaining network (undergrounding, bundling etc.) and still achieve substantial dividends under a commercial model.

It would be interesting to put out to an E.O.I. in taking these assets on, based on a storage deployment model rather than a growth and renewal model. Seems like a good exercise for the number crunchers.

Why bother with storage, when overall demand and consumption is falling?
An argument has been made that, storage is now not necessary as the need to expand network capacity is waning due to the reduction of peak use tied to pricing and solar inputs. That there only remains maintenance and renewal task which would have to be carried out anyway. On the surface this has merit. However the substantial ability storage has to wind back network capacity means that many renewal tasks can be remodeled to a smaller grid, reducing expenditure and allowing for a superior albeit smaller piece of plant when work is completed.

– What are the government’s options for dealing with the legacy 44c FiT?

I am a firm believer that the 44c solar bonus tariff should not be collected via electricity bills, in fact I believe it is illegal and is an excise on electricity. The government should show it as it is, a straight handout that has nothing to do with electricity. A cheque should be drawn from treasury every month and paid to retailers to forward on. The concealment of this handout into electricity charges means that it will never be properly accounted for and over time, once 44c customers peak (post 2015) there will be a growing well of funds based on an impost that is reducing. I just don’t think it’s an honest way of doing things.

As the QCA said, governments need funds to operate and must source them by whatever legitimate means they can. It is all becoming more and more opaque however and this situation is only going to get worse unless governments start quantifying costs and incomes and applying them to actual goods and services. It doesn’t mean cross-subsidizing should not occur, this must happen, but this should be transparent. Whilst AEMO is very good at providing data sets and real time information on energy in the NEM, The pure volume of data available still focuses on the generation and distribution system that it was set up on, before the renewables juggernaut hit.
Cynically, and with no disrespect to academia personally, my reading of the QCA report on electricity prices seemed to be heavily constrained by legislated R.O.I. provisions, which essentially left no room for innovation to be considered. If you provide enough information from enough sources to generate a report, it is possible to produce nearly any pre-determined conclusion. Sadly, without a groundswell of public opinion, and even with this in place, without gutsy moves by government’s status-quo will remain the trajectory.

Because everyone who works in and on this issue is ultra-conservative, obviously trying not to replicate the pink batts scandal, the progress is painfully slow. Added to this the real pressures of government revenue needs and voter backlash, it is an unenviable task.to model future energy distribution. Perhaps it should be left to private conglomerates, but why should this be necessary?

Comments

One response to “How to sell off an electricity distribution business”

  1. Coaltopia Avatar
    Coaltopia

    Storage on the agenda? I’d be surprised if any of my State compatriots were that forward-thinking. I’m just glad solar PV has made the coal belchers unattractive, otherwise these hulks would be hocked today and live-on like Hazelwood in VIC.

    And don’t forget Bluegen – you can weigh the costs of storage vs feed-in-tariff for nat-gas fuel cells. I’d want to look at the whole-of-life CO2 cost of storage vs the fuel cell as well. Then, I’d also want to factor in solar thermal with storage as a comparison.

    Then you’ll want to examine smart grid technology and paying a better price for peak power. You’ll also want to foster an EV culture. Say, a congestion tax on non-EV’s in the city.

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